When handled correctly, managing your car loan is a simple and painless process. As soon as you purchase your car on loan, you should figure out a repayment plan to pay off your debt. A car loan repayment plan is a way to pay back a loan over an extended period. Depending on your loan type, this term will vary. Generally, car loans will require monthly repayments.
Some loan types will allow you to make additional payments to pay off your debt earlier. Your car loan repayment plan will depend on a few things including your budget, how much you can afford to make in repayments, and the duration of your loan. Here are a few tips to help you set up your car loan repayment plan and keep on top of your debts.
Manage your car loan by setting a budget
The first and most important step to managing your car loan repayment plan is to budget. While you might not think you need to budget after you’ve taken out a car loan, doing so will keep you on top of debt and help you to manage any debts in the future. It will also allow you to keep on top of your monthly repayments and ensure that you are still able to meet your repayments while keeping on top of your day-to-day living costs.
To start, write down all your monthly expenses (household bills, groceries, entertainment costs, etc.) and combine them with your monthly auto payments and your car loan. It’s crucial that your car loan repayments fit into your overall budget. Generally, you should be able to put 10% of your monthly income toward your car loan debt. If you find your car repayments fall beyond this, then you need to either look at reducing your monthly expenses or re-evaluating your loan payment plan.
Think about refinancing
After you’ve been driving your car for a while and your car loan begins to self-manage, you may wish to look at refinancing your car. Generally, a few things may happen after taking out a car loan.
You could find that you’re paying higher than average monthly rates, you may find that your interest rates from your lender have dropped, you could also find that your credit rating has improved. If any of these are true, then refinancing your loan could provide you with a better deal on rates and terms allowing you to pay off the sum of your loan faster.
Consolidate your debts
Obtaining a car loan may be adding another source of debt to your household. If you find that you have more than one debt, you may consider consolidating debts. Mortgage payments, credit card bills, student loans, and your car loan can all be tied together in one monthly payment, making it easier to meet and pay them off.
By streamlining your debt this way, you are able to simplify your monthly budget making your repayments more manageable. Consolidating your debts may also make sense for your car loan if you left the bank or dealership with a costly financing plan. Before consolidating your debts, make sure that you have a good credit rating and that you are capable of paying off your loans.
Make payments on time
One of the best ways to manage your car loan repayment plan is by making your payment on time, every time. Having a regular payment history will not only improve your credit score but can also keep your repayment within your budget since you won’t be incurring added interest.
Paying your monthly repayments on time will also allow you to pay your car off even sooner. If you find yourself in a position to be able to pay off your car loan early, you should first consider if any fees or penalties apply. In some cases, paying off your loan early can help lower the cost of your loan by limiting the amount of interest you pay. Making additional repayments can help you save down the track, but always check with your lender first as there may be better options that they can offer.
Increase your savings
Increasing your savings can help you to more comfortably meet your car loan repayments. If you find that you are struggling to meet your monthly payments while balancing your costs of living, then you should try to develop skills to improve your income.
This can be achieved by cutting back on your spending and cleaning up any poor money habits, by taking on more responsibilities in your current job or finding another source of income, or by simply speaking to a mentor or financial advisor. It’s important to curtail your spending habits, even more so if you owe a debt such as a car loan.
Effectively managing your car loan repayment plan means keeping on top of your monthly payments and establishing better financial habits. Sticking to a budget and tracking your expenditures helps you to prioritize your loan payments and ensures you’re able to pay off all your bills. Having a repayment plan in place will make your payments more achievable and allow you to pay off your debts faster.
Every borrower should have a repayment plan in place. Without one, you risk going into further debt by struggling to meet your payments and incurring added fees. Not having a repayment plan also leaves you vulnerable to sustaining a bad credit report; jeopardizing your ability to meet your financial goals.